A notice from the IRS or the Franchise Tax Board arrives, and it shows your accountant made a mistake on your business’s return. Now you face penalties, interest and fees to fix the problem. Knowing who may cover which of those losses helps you decide what to do next and how quickly to act.
An accountant who misses the professional standard may owe you for the loss
California law expects an accountant to use the degree of learning, skill and care ordinarily possessed and exercised by reputable professionals practicing under similar circumstances.
When an accountant falls short and you suffer a loss, the accountant or the firm that employs them may owe you for it. That duty runs only to the client who hired them, a direct contract relationship known as privity of contract.
Your claim must connect the error to a real cost to the business
You generally need to show that the accountant made a mistake a reputable professional would not have made, and that the mistake caused your loss. Recoverable costs often include IRS and Franchise Tax Board penalties and the fees you pay other professionals to fix the return.
You generally cannot recover the tax itself or the interest on it, because your business already owed that tax and had the use of the money. A mistake alone does not create a claim if it left your business no worse off
Professional liability insurance often funds a settlement
Many accounting firms carry professional liability insurance, which exists to cover damages from an error made while providing professional services. These policies often respond when a client makes a claim, so a settlement may come from the insurer instead of the accountant’s own pocket. Coverage depends on the policy terms, including limits and exclusions.
Acting early may protect your claim against the accountant
California generally gives you two years to sue an accountant for professional negligence. When the error affected a tax return, the clock starts when the tax agency formally assesses the deficiency, not when the mistake happened. Keeping your engagement letter, the filed returns, and any agency notices may give an attorney what is needed to review your claim.
A California professional liability attorney may help you pinpoint the deadline that applies to your situation before it passes.